Here is one typical example: Battery maker that received stimulus money could be sold to Chinese company. The US can’t compete with China. China has something the US doesn’t have. That is, a huge population of peasants eager to work very hard. The US has lost nearly every trade round with China since 1990. China has something the US doesn’t have: capital. They use it to buy up industries. Duh.

The above graph shows another huge problem the US has: capital losses. Why is the Federal Reserve holding all the ‘bank liabilities’? This is a tricky question. You see, banks consider capital requirements to be pure evil. They dearly love being able to lend with no capital to support the loans they cheerfully hand out like candy on Halloween.

They hate holding their own loans! Even though banks consider loans to be ‘capital’ they hate holding these because they can go delinquent. This is bad and eats up the capital base so they palmed all of this off onto the Federal Reserve and have parked BAD liabilities with the Federal Reserve!

Yup, the Federal Reserve has been used as a giant toilet to flush down all these bad loans made by the bankers who continue to reward themselves with huge bonuses while their zombie banks continue to suck down our collective capital and then refresh their own accounts by selling off everything to the Chinese.

Under this scenario, the U.S. Mint would make a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue…

In theory, this is much like having the central bank print money.

No, not in theory, in ACTUALITY it is the same as printing money. Duh! I am astonished at the childishness of commentary about what money really is and why restricting money creation is key to preventing rampant inflation. Stuff in grocery stores which once cost pennies now costs dollars, for example. Raging inflation hits hard at home.

Japan and the US have been in this raging war that is hidden from view except we see the resulting inflation. That is, to devalue the currency so trade is more positive for the US, we have debased our own currency like mad even as the Japanese do the exact same thing. So far, the US is ahead of Japan in this game but this is due to Japan being hammered by another Strong Quake Shakes Northern Japan.

Japan now runs a trade deficit with the world and mainly with China so the rulers there tried to fix this by starting a battle over some isolated islands which caused the Chinese to boycott Japanese goods which made their own trade deficit even worse overall! Fatal choice, ney?

Ignorance about the hazards and stupidities of the floating fiat currency regime, the US presses onwards with a huge trade deficit and loss of US taxpayer-jobs to other nations playing this stupid game with us, the Fed’s rescue of the very rich is a disaster as they, themselves, faintly admit today: Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion – Bloomberg

Under the exit strategy, the Fed would start selling bonds in mid-2015 in a bid to return its holdings to pre-crisis proportions in two to three years. An accelerated buildup of assets would also mean a faster pace of sales when the time comes to exit — increasing the risk that a jump in interest rates would crush the economic recovery.

Duh. This wild gyration business is predictable. Yes, the theories of how water works in nature operates in finance. Finance is all magic numbers and assessing positions but it works like water in its dynamic movements. And of course, it is restrained by the iron rules of nature that says Climbing Mount Everest: Infinity Means Death.

Back to the Fed, here is a graph of the reserve balance at the Fed: ALFRED Graph – ALFRED – St. Louis Fed. It has grown seven-fold! This has leveled out after Obama was elected. Note that 50% of this growth happened in the year before Obama took office. And 90% of it happened under Bush Jr:

None of this is mentioned by the hysterical stable of right wing pundits on TV or online. They ignore their massive contribution to this happening in the first place.

Three top officials at the Securities and Exchange Commission announced this week that they plan to leave the agency, following the lead of SEC Chairman Mary L. Schapiro, who plans to step down Dec. 14…

In this case, the transition should not be too bumpy for now, because the incoming chairman, Elisse Walter, has served on the commission since 2008 and spent many years on the SEC staff before then…

And this office will be handed over to another woman. I will note that women are being asked to clean up this mess. HAHAHA. But it can’t be cleaned up if the US insists on free trade, offshoring of jobs that once paid Federal income taxes and all the other messes created by this stupid New World Order that insists we rule the planet with an iron fist on behalf of US billionaires who want to offshore our jobs to China…speaking of which:

China is smart. They know that Russia is a huge territory and thus, like Canada, is a stronger nuclear potential power. Japan, for example, is mainly concentrated in the Tokyo area and one nuke will eliminate the country nearly entirely. Whereas Russia and China are big and have a long reputation of retreating deep into the interior when under attack. Japan and Europe don’t have this power. Nor does Israel. The US and Canada do have this power.

And it is about all we have left! This is beyond sad. We should have kept our noses out of Muslim affairs after the end of the Vietnam war instead of going into the Deep Muddy of dry Afghanistan which continues to merrily destroy our government’s finances.

29 responses to “Giant Platinum Coins Will Not Save US Finances”

No, not in theory, in ACTUALITY it is the same as printing money. Duh! I am astonished at the childishness of commentary about what money really is and why restricting money creation is key to preventing rampant inflation. Stuff in grocery stores which once cost pennies now costs dollars, for example. Raging inflation hits hard at home. -EMS

There is no solvency risk for the US Government for it is sovereign in its own currency. The US Dollar is issued by only one source, the Federal Reserve Bank, and is neither convertible to precious metal nor pegged to any other currency. “Money” in the era of “fiat” currency is a unit of account like inches, yards, or miles. The federal government can no more fail to meet its obligations due to running out of dollars than a home builder flush with material and labor can fail to complete the construction of a house because he has run out of inches.

Once again, the United States government is not in any way operationally constrained by the need to raise revenue or “borrow” for it is the ISSUER of the currency and not a USER of the currency as is the case for households, municipalities, or states. Taxes at the federal level are a means of regulating aggregate demand and do NOT fund government operations. This is a destructive myth. The money the government receives in the form of taxes is essentially money destroyed in the same manner that a ticket used to gain admittance to an NFL football game is destroyed after its submission and for the same reason: there is no further use for it.

Deficit spending is essential in a recession and there is no risk of inflation in an economy that is running 30% below full capacity. The only natural boundary to fiscal spending by the federal government is the available capacity of the economy to produce the goods and services that we need.

Finally, the federal deficit is the private sector surplus TO THE PENNY. How could it be otherwise?

So, we can print money all we want, eh? So why don’t we do just that, pay off all debts and live happily ever after?

Coldtype, if that would happen, money would instantly lose all of it’s value. Why would you sell anything for cash when government might just cut off 90% of value from that overnight? People would (and already are, btw!) instantly cease selling anything for dollars and go back to primitive bartering.

Elaine, I really appreciate your blog. Doing a fact check, in the bottom most Alfred chart, you have posted graph of a small fraction of FRB holdings of Treasury securities, i.e. 73 Billion dollars of TIPS, inflation indexedTreasury notes and bonds.

This is not the stastistical data you want to use to get to where we both know you are going.

People would (and already are, btw!) instantly cease selling anything for dollars and go back to primitive bartering. -Duski

Go back to bartering huh? You often hear economists mention that barter preceded monetized economies but there’s a funny thing about this assertion: anthropologists can find no actual evidence of it. What they have found, however, is that CREDIT systems were evident everywhere before “money” but that’s a matter for another day…

Duski, the government “prints money” every day by animating electrons in computers thereby marking reserve accounts up or down. What gives our money “value” is its utility and the fact that the ISSUER of our currency will accept nothing else to settle our tax obligations.

Two questions (and answers):

1. Under what circumstance would a government check bounce? There are none.

2. What is the inflation risk of deficit spending to public purpose in an economy with millions of unemployed or under-employed people and plenty of things that need doing? There is none. The only limit is the capacity of the real economy. Adding money beyond this point IS inflationary, but today we are nowhere near full employment and the economy is operating below full capacity to significant degree.

What was the relationship between money and REAL capital in 1880, vs 2012? If you really want to address the issues of today, this is the foundation of what the argument needs to based upon. I think we agree on this. Capital is saved money that was honestly earned and put to risk for profit or loss. Printed money is an obscene raping of free markets.

Where I diverge however is upon barter. Barter has never died ever, in any country in the history of mankind. The central bankers want to destroy it through the elimination of paper money, allowing only electronic transactions which they will monitor. In other words, no more buying at garage sales, flea markets, swap meets, farmer’s markets, or simply buying a useful item from your next-door neighbor, with cash.

I don’t know if you’ve ever lived in a foreign country, but I have, and can personally attest that people will always find ways to get around the gooberment taking their “fair” cut on the transaction.

I would opine that we are headed at light speed towards having black markets here in the US of A. It doesn’t matter if you like that fact or not, but black markets are absolutely genuine free markets. They fill the void that politicians/corporations deliberately create for their own benefit. I learned this in the Philippines under the Marcos regime in the late ’70s.

More correlation between the US and the old Soviet Union. The black market was enormous in the Soviet Union. It’s why the Soviet Union died with barely a whimper. Everybody and their dog knew it was all a shell game. There was simply nothing to save.

Dubya Bush aready used up the ‘print cheap money’ card. It cost the western world it’s banking system, much ot it’s economic foundation and decades of economic depression and social unrest.

It also means the US Dollar is going the way of the Weimar Mark.

“The hyperinflated, worthless Marks became widely collected abroad. The Los Angeles Times estimated in 1924 that more of the decommissioned notes were spread about the United States than existed in Germany.”

The US is using all kinds of tricks to keep the trillions of printed/electronic ‘money’ that has flooded overseas to return in a tangible form into the US economy and destroy the dollar. That is why the working poor are getting hammered into the ground, wages are cut, jobs offshored (current real unemployment is 22-23% according to Shadowstats), promised pensions are not payed, SS is cut to the bone and beyond etc and the middle class is sinking into the ‘working poor’ morass…

The ‘austerity’ trick to increase the distance between those who have ie the rich, and those who have not, ie the poor, is part of this mechanism. If you cannot go up, you can always push the others down. You use the destruction (deflation) of other people’s means as a way to combat inflation.

If the US printed money to cover these ‘deficits’ in the need of the people, much the money would simply flood overseas (the trade deficit) accelerating the demise of the dollar as trade partners, domestic and international, would demand higher and higher prices for their goods and you’d enter the Weimar scenario in no time. We saw this process prior to the 2007/8 crash with oil hitting $150+ a barrel.

Just like with the Weimar the foreign trade partners would soon start to demand gold, and/or other tangible concessions, instead of printed dollars(marks) to pay for their goods, and that would be the end of the dollar.

Capital is saved money that was honestly earned and put to risk for profit or loss. Printed money is an obscene raping of free markets. -MikeM

Money is not wealth but the mechanism by which we facilitate the exchange of the goods and services we need. It is a unit of account, a measurement by which we may value the things and services we desire. Wealth is leisure time, shelter, adequate food and water, in short, freedom from want. Money is the means to this desired outcome in just the way the units of measurement are to the home builder.

Capital is created from LABOR. Labor on the land, labor in production methods, labor in raising animals, children, whatever. That is what capital creation is all about.

It is NOT about money. -EMS

Here we have no disagreement for this in no way contradicts my position. You are completely off base, however, in your assertion (if I understand you correctly) that deficit spending in a recession is inflationary. The FDR era federal jobs programs which put 12 million people to useful work in the teeth of the Great Depression was in no way inflationary.

Once again, deficits are not the problem and in fact are ESSENTIAL for they are ultimately the source of the money in our economy. If the government were to reverse this pattern and operate in constant surplus then the government’s claim on our wealth would consume us entirely. Remember, the deficit is the difference between what the government spends and what it collects in tax revenue. A surplus is of course the opposite: the government collects from us MORE in taxes (money destruction) than it spends into the economy (money creation).

We are in a closed system. Printing more $ does not create more goods. -911

Goods are created to meet demand so I’m not sure what you mean here. If producers want their goods in the hands of those who want them then money must be created to facilitate the demand. I want those tools but I cannot expect the tool maker to accept my hopes and dreams in exchange for them. I’ll need an income to facilitate the transaction. If Uncle “prints dollars” and pays me a reasonable wage to do useful work in a federal jobs program then the tool maker can create all the tools needed to meet my demand.

Coldtype, USA has had deficit spending during recessions and when economy was going good.

The problem with deficit spending is that it creates disturbance to markets. Government can keep on spending on everything that is not really necessary, markets can get distorted; for example, in this crisis several big banks made horrible decisions which should have taken all of them to bankcruptcy, but now government saves them and they keep on making horrible decisions.

We do have plenty of examples of societies which were going downhill and indeed kept deficit spending up all the way. Why do you think that there is slack in economy that deficit spending can help to correct? More likely current spending does not reflect the real state of economy and this leads to the need of deficit spending in the first place.

If government would cut back on spending, real economy would reassert itself soon enough. Look at Iceland for example, they did everything differently, they let the banks burn, and things are already looking up there. Or, for different example, Greece kept on spending and spending all the time, until markets decided to stop it by raising interest rates on it’s debt. Are you telling me that if Greece still had drakhma they could spend on to infinity? Or perhaps no one outside of Greece would soon trade anything for their currency?

USA dollars have been worlds reserve currency and this has enabled current huge deficits there. But this is coming to an end. I am afraid there are no winners in this debate at the end…

Money printers are right, but it only works till a higher power says NO. Problem here is, all western currencies are de-facto US$ and its more fun to say yes than to weather the consquences of saying no.

In your #15 response, you postulated that “The FDR era federal jobs programs which put 12 million people to useful work in the teeth of the Great Depression was in no way inflationary.” The conclusion is so precise that no further comments are warranted here. However, I will emphasize certain issues that may be relevant to the postulate above:
– Elaine has repeatedly emphasized the importance of considering
overall past history when confronted with critical issues
– This Great Depression period is rife with all sorts of major and
frequent “historical” events. In this time period we had WW1, the
Great Depression and WWII, back to back – all major historical
events.
– US government reports on consumer price index (CPI), which reflects
inflation / deflation , shows high inflation from 1915 to 1920 (WWI), a
few years of deflation, then minimal inflation for nearly 20
years. Suddenly, in about 1933 , the CPI sharply deflated until about
1940.. Then, about 1940 high inflation starts again – WWII. During
this period, there were all sorts of historical events that impacted on
various economic events. What were the causes or the effects? How
can you reconcile such a precise conclusion in face of the roughly 30
year tumultuous historical events and resultant variation in inflation.

Finally, I raise two philosophical issues:
– Is inflation ( good or not good for the consumer) or (good or not good
for the supplier)
– Is the supplier product the driver of the consumer or the consumer the
driver for the supplier product.

As long as the world economy as a whole expands, the demand for dollars will increase along with it allowing the USA to print more dollars indefinitely. This getting to print the world’s reserve currency thingy sure is a lot of fun.

– 911 said in #16
“We are in a closed system. Printing more $ does not create more goods.
It is NOT about money’.”

Although the world economy is indeed a closed system, it is NOT static.
Contrary to your assertion, in a monetary economy it is all “about money”.

In a dynamic economy, increases in the money supply (the vast majority of which is bank credit) do NOT neccesitate inflation.
Rather it is a growing economy that neccessitates a growing supply of money.

ALL Federal spending is “money printing”,
The Federal Government doesn’t need taxes or bonds to spend. Until it first spends money into the economy there isn’t any for it to even tax.
The Government just credits bank accounts when it wants to spend.